Openreach's fiber splurge is a boon for non-Chinese vendors

Until now, the infrastructure unit of UK telecom giant BT has relied heavily on Huawei, China's biggest maker of network equipment, to extend full-fiber networks to about 2.6 million homes. But in January, UK authorities under US pressure slapped restrictions on the Chinese company as a "high-risk vendor," limiting it to just 35% of properties covered by any one full-fiber network.

The government restrictions are a boon for other equipment makers. Back in July 2018, when the deal with Huawei was first announced, Openreach also revealed that Nokia would begin providing full-fiber equipment in mid-2019. Conscious of the backlash against Huawei, Openreach was subsequently reported to be on the hunt for a third vendor. It finally settled on Adtran, a US company, announcing that partnership just a few days ago.

As UK policymakers debate even tougher limits on Huawei, Nokia and Adtran could now supplant the Chinese firm as Openreach embarks on a far more ambitious rollout than first envisaged. Threatened by rivals and egged on by fiber enthusiasts in government, BT this month said it would target about 20 million properties by the mid-to-late 2020s, provided regulators play fair. Previously, it was aiming for roughly 15 million by the mid-2020s.

So far, Openreach's deployment has progressed well. Despite the coronavirus pandemic, the pace of buildout has now risen to about 32,000 homes per week, from 26,000 at the start of the year. It now thinks it will hit 4.5 million properties by March 2021, about half a million more than it previously expected.

One possible risk is that a shift away from Huawei – tried and trusted, as far as Openreach is concerned – brings disruption. Adtran has only just landed its full-fiber contract, of course. And while Nokia was supposed to supply equipment starting in July 2019, the extent of its full-fiber involvement so far remains unclear. After it issued a statement earlier today, indicating it "will" supply gear based on the GPON and XGS-PON standards, a spokesperson told Light Reading that Nokia has already provided some fiber equipment to Openreach, while declining to say how many properties this covers.

Openreach, though, has acknowledged it currently exceeds the 35% Huawei threshold and is working to reduce this "within the three-year timescale" set by authorities. In a network ultimately deployed to around 20 million homes, Huawei would be allowed to cover 7 million properties under government rules. This probably gives it access to somewhere between 4.4 million and 5.5 million homes not yet covered, depending on its current footprint. But the possibility of more stringent government caps could persuade BT to avoid Huawei as much as possible from now on.

What issues could Adtran and Nokia face in the time of COVID-19? Speaking to Light Reading on that topic in late April, Kristian Pullola, Nokia's chief financial officer, said: "We have gone from a supply chain risk environment now into more of a delivery-related risk environment, because the challenge of COVID-19 is how to complete installations in a world where there are restrictions on site."

But there is limited cause for wariness about a fiber deployment in the UK. For one thing, the UK has already designated telecom engineers and technicians as "key workers," allowed to do jobs outside the confines of the home. For another, the Openreach full-fiber rollout does not appear to have stalled in recent weeks, judging by the recent updates. Staff absences in the early days of the lockdown were at the 20% level, said Openreach CEO Clive Selley during a recent call about financial results, but that has already improved significantly.

"We are spending slightly less capex on build this quarter, but it's not going to be a huge hit," he told analysts. Under a revised plan, he explained, Openreach still aims to reach another 2 million properties this fiscal year by accelerating the pace of rollout from the second quarter onwards, as the UK emerges from lockdown.

All this entails considerable expense for BT. It has estimated full-fiber buildout costs at between £300 ($367) and £400 ($489) per home passed, but mainstream media reports cite an overall figure of £12 billion ($14.7 billion) for the latest project. Dividends have been scrapped, and capital expenditure could rise to £4.6 billion ($5.6 billion) in the next two or three years, from £3.9 billion ($4.8 billion) last year, according to a research note from Jefferies. That's good news for the makers of fiber-optic equipment, especially if they are not Chinese.